Question

what are adjusting entries? What does “closing the books” mean? Define Retained Earnings and what is its relevance? What is the purpose of a “post-closing trial balance”? Define report customization and if there is a need for this.

Answer 1

Adjusting Entries:

These are usually made on the last day of an accounting period (year, quarter, month) so that a company's financial statements comply with the accrual method of accounting. In other words, the adjusting entries are needed so that a company's:

· Income statement reports the expenses and losses that were incurred during the accounting period

· Balance sheet reports the asset/liabilities it has incurred as of the end of the accounting period

Examples of Adjusting Entries

· A company shipped goods on credit, but the company's sales invoice was not processed as of the end of the accounting period

· A company received some goods from a vendor but the vendor's invoice had not been processed by the company as of the end of the accounting period

Closing the Books:

Making sure that all the pieces of information within a certain period (reporting period which could be month, quarter or year) were accounted for so that the information provided in reports like the balance sheet and income statement would be accurate for that period. Closed books allow for accurate reports. Accurate reports, in turn, help you run your business.

Retained Earning and Importance:

The amount of net income left over for the business after it has paid out dividends to its shareholders. Often this profit is paid out to shareholders, but it can also be re-invested back (retained in business) into the company for growth purposes. The money not paid to shareholders is referred as Retained Earnings.

These can be used by Company for business investments , funding R&D activities , paying off debts and becoming debt free etc.This is one of important parameters that tells about the health of the Blance sheet.

Post Closing Trial Blance:

A post-closing trial balance is a listing of all balance sheet accounts containing non-zero balances at the end of a reporting period. The post-closing trial balance is used to verify that the total of all debit balances equals the total of all credit balances, which should net to zero. The post-closing trial balance contains no revenue, expense, gain, loss, or summary account balances, since these temporary accounts have already been closed and their balances moved into the retained earnings account as part of the closing process.

Once the accountant has ensured that the total of all debits and credits in the report are the same number, the next step is to set a flag to prevent additional transactions from being recorded in the old accounting period, and begin recording accounting transactions for the next accounting period. This is one of the last steps in the period-end closing process.

Report Customization and Need:

Customized reports provide a more effective way to view your business’s health and track performance.Custom reports display the exact data needed, and eliminate data entry mistakes. Automation of reports ensures that accurate data gets to the right people precisely when and how they need it.Customizing the reporting process produces a range of benefits, including speeding up processes, lowering costs, and increasing efficiency.